Encompass Health Corp (EHC)

Encompass Health Corp's current ratio has shown fluctuating trends over the past few years. The ratio started at 1.34 in March 2020, peaked at 1.72 in September 2020, but then gradually declined to 1.05 by December 2024. Overall, the current ratio remained above 1, indicating that the company had more current assets than current liabilities to cover its short-term obligations.

In contrast, the quick ratio, which provides a more conservative measure of liquidity by excluding inventory from current assets, displayed a more volatile trend. It started very low at 0.18 in March 2020, increased to 0.66 in September 2020, but then dropped significantly to 0.10 by December 2022 before recovering slightly to 0.10 by December 2024. This suggests that the company may have had difficulties meeting its short-term obligations without relying on inventory during certain periods.

The cash ratio, which measures the company's ability to cover its current liabilities with its cash and cash equivalents, followed a similar pattern to the quick ratio. It started at 0.18 in March 2020, increased to 0.66 in September 2020, but then declined to 0.10 by December 2024. This indicates that while Encompass Health Corp had a healthy amount of cash on hand relative to its current liabilities at some points, it faced challenges in maintaining this liquidity position over time.

Overall, Encompass Health Corp's liquidity ratios suggest some variability in the company's ability to meet its short-term obligations and manage its cash flow effectively. Monitoring these ratios closely can provide insights into the company's liquidity position and potential risks in the future.

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Additional liquidity measure

The cash conversion cycle of Encompass Health Corp has shown variability over the years, indicating changes in the company's efficiency in managing its cash flow and working capital.

From March 2020 to December 2021, the cash conversion cycle fluctuated between 108.74 days and 133.96 days. This indicates that the company took an average of around 110-130 days to convert its investments in inventory and accounts receivable into cash inflows from sales.

However, in the subsequent periods from March 2022 to June 2024, significant improvements were observed in the cash conversion cycle, as it decreased from 104.29 days to 0.00 days. A lower cash conversion cycle suggests that the company has been able to speed up the conversion of its investments into cash, indicating better liquidity management and potentially improved operational efficiency.

The drastic decrease in the cash conversion cycle to 0.00 days by the end of December 2024 indicates that Encompass Health Corp may have optimized its working capital management, streamlined its processes, or enhanced its collection methods, resulting in almost immediate conversion of investments into cash without any delay.

Overall, a declining trend in the cash conversion cycle is generally positive as it signifies efficient working capital management, improved cash flow, and potentially better financial performance for Encompass Health Corp.